Macroeconomic and financial market commentary

Daily Archives: March 16, 2015

Okay. I concede to loving it. Nothing like a good old-fashioned short squeeze to turn me on financially. I am old enough to remember those great days in which smart, no remorse investors, played the game in pork bellies or corn. Chicago was the financial far west. Short squeezes in commodities were awesome, despite their questionable underlying ethics. ¿Are markets ethical the other way around anyway? ¿Who can talk for POMO desk ethics?

Fortunately, I was too young to be directly involved at the time, but I found those trading techniques exhilarating. I say fortunately, because sailing can compensate for the lost adrenaline, but age is irreversible. I have my crew working hard to prepare the next ORC world sailing championship taking place in ¡Barcelona! That should fill in the adrenaline lost when missing pork belly trading.

Short squeezing the USD is for adults only. Forget lean hogs, iron ore, or copper. They are childs play. EURUSD and USDJPY are the central pillars of the financial universe. Volume remains gigantic, even as liquidity is seriously impaired in most markets. Ten year JGB’s are the paradigmatic example: there is no market without the BOJ as a counterparty!

That’s not the case in the two main currency crosses. Even POMO desks fear both trades. You can corner the JGB market if you own the BOJ balance sheet, but even printing JPY at will, leaves you short of a real control of the USDJPY. The same thing goes for superMario. In the end, even controlling the EUR base money supply, he ends up imploring or jawboning participants to iinfluence currency prices. Well, now that think of it,he never really does that, because “the price of the euros is not a target for monetary policy in itself”. Ha ha. A stunning actors studio representation indeed. A better liar than Michael Corleone in the final scene of the film.

The size of the actual USD short squeeze is mind-boggling. As Confucio said, there is beauty in all things. you just have to see it. Admittedly, it does help to be long the USD, it’s tough to see the beauty of it when you’re being massacred. I’m still there in large size, but no leverage. I wish I had remained leveraged all along. In retrospect, the strength of the move was clear. As I grow old, I become more and more risk averse. I should have been leveraged all the time. Continue reading →